Charitable Issues
Are you considering setting up a charity?
We love to see our clients explore the possibility of engaging in an enterprise for the ultimate goal of helping others in a charitable way.
However, what many people don’t realise is that to be considered a charity at law involves more than just an objective to be charitable. Further, if you are seeking tax concessions and endorsements in relation to carrying on a charitable enterprise, it is important to also fall within the definition of a charity under the Tax Act.
For example, to be considered a charity under the Tax Act, the entity must fall within one of two categories. First, it must be specifically named as a charity under the Act or fall within one of the general categories. These include:
- public universities
- public hospitals
- school building funds
- public libraries
- registered cultural and environmental organisations
- ancillary funds
- public benevolent institutions
Whilst most people are aware of what constitutes these general categories, we find that there is some mystery around the meaning of ‘public benevolent institutions’ (PBIs) and therefore a specific investigation is required concerning whether the entity is in substance a PBI.
To be characterised as a PBI, the following criteria must be satisfied:
- the enterprise is a charity. Courts will often draw on various common law and statutory material to ultimately determine whether an enterprise is a charity or not. The Charities Act however, seeks to clarify the elements that must be present for an organisation to be recognised as a charity. In essence, these include the following:
- the organisation must be not-for-profit
- it must have only charitable purposes which are for the public benefit
- it is not entitled to have a disqualifying purpose
- the organisation must not be an individual, a political party or a government entity
- the enterprise must have as its main purpose, the provision of benevolent relief to people in need
- it must be public
- it must be an ‘institution’
One of the more contentious issues that we are asked to opine on is whether the organisation is providing ‘benevolent relief to people in need’. This definition implies that relief must be provided directly to the subject. If benevolent relief is too far removed, the entity will not be considered to be a PBI. We find that issues can arise where the relief is provided in a foreign jurisdiction, through an intermediary, or where it is a step removed from the ultimate work being done (e.g. fundraising activities).
We note that therefore, if the enterprise hoping to obtain charitable status is engaging in fundraising as opposed to providing benevolent relief itself, it would be prudent to consider Australia’s fundraising regime on a state by state basis to ascertain whether any licences or permits are required to conduct the fundraising activities. (E.g. in Victoria, if you are considered to be a ‘fundraiser’ under the Fundraising act 1998, you may be required to register as a fundraiser and keep accurate financial records. You would also be regulated by Consumer Affairs Victoria. A fundraiser includes an entity who conducts public appeals to support causes or people).
Once an entity is identified as a charity, regard must also be had to the obligations on the entity arising under various legislation depending on the legal structure being adopted, e.g. the Corporations Act 2001 (Cth), the Charities Act 2013 (Cth) and the Associations Incorporation Reform Act 2012 (Vic). The Australian Charities Commission also imposes a number of regulatory obligations, which include the preparation of accounts and maintaining up to date information on the charities register.
As you can see, determining whether your enterprise is a charity involves the contemplation of a wide range of legislative instruments which are regulated by a number of government organisations for example the Australian Charities Commission, the Australian Taxation Office and Consumer Affairs Victoria.
It is therefore important that advice is obtained before embarking in any type of charitable activity to ensure that the correct analysis and applications are made. If you are considering setting up a charity, please give us a call for a preliminary discussion.
We’re here to help.
Ann-Maree Ventura Special Counsel
Level 3, 1 Palmerston Crescent
South Melbourne, VIC 3205, Australia